Browse content similar to Mohamed El-Erian - CEO, PIMCO. Check below for episodes and series from the same categories and more!
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More needs to rout the night. Now Is it time for the doom-mongers to | :00:12. | :00:20. | |
admit they were wrong about the world economy? The eurozone is | :00:20. | :00:24. | |
intact, the US hasn't plunged off that fiscal cliff and even the most | :00:24. | :00:27. | |
stagnant economy of them all - Japan's - is showing signs of life. | :00:27. | :00:30. | |
Could it be that central bankers and politicians are finally ready | :00:30. | :00:35. | |
to take bold decisions in their quest for growth? HARDtalk speaks | :00:35. | :00:38. | |
to one of the world's most influential investors, Mohamed El- | :00:38. | :00:41. | |
Erian, boss of the massive PIMCO fund management business. Caution | :00:41. | :00:51. | |
:00:51. | :01:18. | ||
or confidence, which is winning Mohamed El-Erian, welcome to | :01:18. | :01:25. | |
HARDtalk. Thank you. The last time we spoke, a couple of years ago, | :01:25. | :01:30. | |
you were pretty gloomy about the outlook for the world economy. One | :01:30. | :01:40. | |
:01:40. | :01:41. | ||
word you used words terrifying. Has the fear gone for you? To some | :01:41. | :01:47. | |
extent, but not completely. I was terrified of the prospects of | :01:47. | :01:54. | |
sluggish growth, persistently high unemployment, and social unrest. | :01:54. | :01:58. | |
What we have seen in the last couple of years is exactly that. | :01:58. | :02:02. | |
Sluggish growth, very high unemployment and unrest in seven | :02:03. | :02:08. | |
countries like Greece. However, we have seen the actions taken back | :02:08. | :02:14. | |
has delayed the second stage. I am glad about that. As a parent, I | :02:14. | :02:20. | |
would rather see the world going into concerned then into a bad | :02:20. | :02:24. | |
state. I have had the impression that you | :02:24. | :02:30. | |
have felt that political leaders around the world, maybe most | :02:30. | :02:37. | |
particularly in the advanced economies, when it up to the task. | :02:37. | :02:41. | |
Thank you think it is time to modify the negative view you have | :02:41. | :02:48. | |
of political leadership? I wish I could say yes. But not yet. The | :02:49. | :02:53. | |
reason why the global system is in a better place has very little to | :02:53. | :02:57. | |
do with the politicians and more to do with central bankers. They have | :02:57. | :03:04. | |
stepped up to P-plate. They had used exceptional measures. It is a | :03:04. | :03:08. | |
little bit like drug company putting out a medication that has | :03:08. | :03:13. | |
not been clinically tested. They have bought time for the | :03:13. | :03:17. | |
politicians to get that act together. But the politicians have | :03:17. | :03:24. | |
not done their bit yet. They have not stepped up to the | :03:24. | :03:28. | |
responsibility. There is one country right now where the | :03:28. | :03:34. | |
relationship between politicians and central bankers might be being | :03:34. | :03:38. | |
changed in an important and fundamental way. That country is | :03:38. | :03:44. | |
Japan. The new Prime Minister has a clear democratic mandate to take | :03:44. | :03:53. | |
some dramatic economic policy decisions. Decisions he will impose | :03:53. | :03:57. | |
on the central bank. It is about listening monetary policies and | :03:57. | :04:00. | |
changing the key objectives the central bank had been working | :04:00. | :04:07. | |
towards. That is fundamentally important. It tells us about how | :04:07. | :04:11. | |
the global system is operating. Japan is being forced into this | :04:11. | :04:17. | |
debt. It has had its currency appreciated. If one central bank is | :04:17. | :04:23. | |
pumping a lot of liquidity, as it is in the US, but other people have | :04:23. | :04:29. | |
very difficult choices. I dare say it accept the consequences and see | :04:29. | :04:33. | |
their currency appreciate, hollowing out their economy, like | :04:33. | :04:43. | |
:04:43. | :04:43. | ||
in Japan, or they could during the Fed in what they are doing. It is | :04:43. | :04:48. | |
scored irresponsible responsibility. It is the right thing to do because | :04:48. | :04:54. | |
someone else is being irresponsible as well. People look ready, not | :04:54. | :04:59. | |
just as a hugely influential commentator, but as a real premier. | :04:59. | :05:02. | |
You and you'll find, you look around the world for the wisest | :05:02. | :05:08. | |
places to put your investors' money. Especially in bonds. Including | :05:08. | :05:15. | |
government bonds. You look at the Japanese prime minister's attempts | :05:15. | :05:23. | |
at stimulating the economy, rise of inflation in Japan and the devalued | :05:23. | :05:27. | |
currency, you look at what is happening and think that Japan is | :05:27. | :05:31. | |
still a place you want to put money? You sound like a good | :05:31. | :05:37. | |
investment manager. You said exactly what will happen. They will | :05:37. | :05:41. | |
target high inflation, and they will weaken the bin cut -- weaken | :05:41. | :05:47. | |
the currency. We have to react to that. Owl role, as guardians of | :05:47. | :05:55. | |
people's invention -- pension and savings, we have to deliver. | :05:55. | :06:00. | |
Depended on which part of the Japanese market you are looking out, | :06:00. | :06:03. | |
there are both risks and opportunities. The opportunities | :06:03. | :06:08. | |
come from the fact that they're going for growth. That is good for | :06:08. | :06:12. | |
certain markets. The risk is that they are going to weaken their | :06:12. | :06:17. | |
currency, therefore you have to be careful about holding Japanese yen. | :06:17. | :06:23. | |
We are talking about a country with a large running budget deficit. And | :06:23. | :06:31. | |
even worse, a massive debt mountain which adds more than 220 % of GDP. | :06:31. | :06:37. | |
I am surprised you are sounding so sanguine about the prospects. There | :06:37. | :06:41. | |
is the potential of a massive collapse in Japan if this policy | :06:41. | :06:47. | |
does not work. You asked me what was likely to happen. If you asked | :06:47. | :06:51. | |
me what should happen, we would have a different discussions. The | :06:51. | :06:57. | |
reality right now is whether it is Japan, or the eurozone, or the US. | :06:57. | :07:02. | |
Everyone is taking short-term measures. They are not doing the | :07:02. | :07:07. | |
hard work, which is structural reforms, dealing with many economic, | :07:07. | :07:13. | |
political, social issues. They are looking to central banks for | :07:13. | :07:18. | |
delivering a shot -- short-term outcomes. That is the world we are | :07:19. | :07:22. | |
living in. The politicians have not stepped up to their | :07:22. | :07:30. | |
responsibilities. They have to make tough decisions. Despite the time | :07:30. | :07:35. | |
delay between me and you in California, I have to interrupt you. | :07:35. | :07:41. | |
It is easy for you to sit there. You are not held to account by | :07:41. | :07:46. | |
voters. You know that voters around the world, especially in the US, | :07:46. | :07:51. | |
Europe and Japan, they have people will are not willing to accept high | :07:51. | :07:55. | |
levels of unemployment and continuing sluggish growth. They | :07:55. | :08:00. | |
have to deal with that. One way they have decided is to continue | :08:00. | :08:07. | |
with highly stimulative policies, including quantitative easing. And | :08:07. | :08:10. | |
instructing their central banks to not just be preoccupied with | :08:10. | :08:15. | |
inflation targets, but also to think about removing the jobless as | :08:15. | :08:25. | |
well. But has to be right for a politician. It is. They should be | :08:25. | :08:29. | |
targeting higher growth and low unemployment. I have been saying it | :08:29. | :08:33. | |
non-stop. Bad it is wrong of politicians to think that central | :08:33. | :08:38. | |
banks can deliver what I call the immaculate recovery. Even central | :08:38. | :08:43. | |
bankers are warning, whether it is Mervyn King in the UK, or Ben | :08:43. | :08:49. | |
Bernanke. Do not depend on us. You need to do you roll so we can build | :08:49. | :08:55. | |
a bridge. We cannot deliver the destination. The politicians are | :08:55. | :09:00. | |
focusing on a bridge and what the people like is a destination. And | :09:00. | :09:03. | |
that would not come until board decisions are made by the | :09:03. | :09:09. | |
politicians. I want to give a quote to you. This man has not been a | :09:09. | :09:16. | |
huge fan of you because he things you have been deeply conservative. | :09:16. | :09:21. | |
Of Japan, he says, something remarkable is happening over there. | :09:22. | :09:25. | |
The country that has pioneered economic stagnation may show the | :09:25. | :09:34. | |
rest of us a way out. He thinks this could be a watershed moment. | :09:34. | :09:41. | |
He is right. For him to deliver the watershed moment, which is possible, | :09:41. | :09:46. | |
it is not probable. This is what needs to happen. The Bank of Japan | :09:47. | :09:50. | |
needs to be convinced it can deliver what the Prime Minister | :09:50. | :09:58. | |
wants them to do. Second, you need fiscal stimulus. Japan has a really | :09:58. | :10:04. | |
bad track record current fiscal and skinniness. Third, you need society | :10:04. | :10:08. | |
to accept the short-term cast which has higher inflation and higher gas | :10:08. | :10:13. | |
prices. 4th, you need political harmony. We are looking at Japan, | :10:13. | :10:19. | |
we are hoping they can deliver. But we are not under estimating what | :10:19. | :10:24. | |
they need to do. You talked about Mervyn King, the current governor | :10:24. | :10:31. | |
of the Bank of England. And you talked about Ben Bernanke. There is | :10:31. | :10:36. | |
the idea that the old orthodoxies, inflation being the only key | :10:36. | :10:40. | |
priority for motor policies and central bankers, has to be modified. | :10:40. | :10:45. | |
There has to be a broader look at central banks taking responsibility | :10:45. | :10:51. | |
for growth, not just for inflation. The new guy who will replace Mervyn | :10:51. | :10:57. | |
King seems to buy into that. Do you? I do. From day one, I have | :10:57. | :11:02. | |
recognised that inflation is a means to an end. The end is | :11:02. | :11:06. | |
improving living standards and better opportunity for all. He she | :11:06. | :11:11. | |
has shown that when you have high inflation, you do not just give up | :11:11. | :11:15. | |
growth, but he also give up on income distribution because the | :11:15. | :11:20. | |
poor cannot protect themselves from high inflation. Low and stable | :11:21. | :11:25. | |
inflation is a means to an end. What people are finally realising | :11:25. | :11:30. | |
is that you need to target the end more aggressively. I would not put | :11:30. | :11:36. | |
all the burden on central banks. This is a shared responsibility | :11:36. | :11:42. | |
among many economic agencies nationally and globally. Bellini | :11:42. | :11:51. | |
much better policy called an Asian. -- we need much better policy | :11:51. | :12:01. | |
called in. I imagine you are not thinking about the way in which the | :12:01. | :12:06. | |
White House, and the US Congress are working together, or do not | :12:06. | :12:12. | |
work together. The fiscal cliff was avoided by it is the sense of | :12:12. | :12:19. | |
crisis still alive? Still alive is the underlying problem. The US has | :12:19. | :12:25. | |
not as much of an economic issue as it does a political issue. We are | :12:25. | :12:29. | |
seeing extreme political dysfunction in Congress. I am | :12:29. | :12:34. | |
looking at this as an image of a divorcing couple arguing over a | :12:34. | :12:42. | |
pillowcase. There are be the issues. -- bigger issues. But they cannot | :12:42. | :12:48. | |
even resolved the argument over the pillowcase. If you're living in | :12:48. | :12:53. | |
this country, you have very little heart in Congress. Less than 10% of | :12:53. | :12:58. | |
the population think Congress is doing a good job. This political | :12:58. | :13:05. | |
discussion is holding back growth and employment. Congress is looking | :13:05. | :13:09. | |
to keep the can down the road when it comes to the debt ceiling. They | :13:09. | :13:13. | |
have to lift it beyond the 16.4 trillion dollars it currently | :13:13. | :13:19. | |
stands at. It was coming to ahead in late February but it looks like | :13:19. | :13:24. | |
it will be put back three months more. Ben Bernanke says if this is | :13:24. | :13:29. | |
not sorted, it could be a recovery ended event. Is it right to see it | :13:29. | :13:36. | |
in those terms? It is. The longer this uncertainty persists, the more | :13:36. | :13:43. | |
businesses will hold back in investing in people, equipment, and | :13:43. | :13:49. | |
then the growth momentum will sigh. It is not just that this is | :13:49. | :13:52. | |
dampening growth. It is taking attention away from other issues. | :13:53. | :13:59. | |
We need help on the functioning of the labour market. President Obama | :13:59. | :14:04. | |
set up an employment initiative six months ago. It got nowhere. We need | :14:04. | :14:08. | |
help in the credit market. Small businesses cannot get credit. We | :14:08. | :14:13. | |
need help in the functioning of the housing market. There are many | :14:13. | :14:17. | |
items on the two to list in Congress. It is being crowded out | :14:17. | :14:21. | |
by these continuous fight over the fiscal issues, that simply are | :14:21. | :14:27. | |
repeated month after months. Before we finish a quick tour of the world | :14:27. | :14:33. | |
economy, I have to take you to future of the euro. He said there | :14:33. | :14:37. | |
were real fears that the euro, in its current configuration, would | :14:37. | :14:43. | |
not survive. The eurozone has poured through. Are you prepared to | :14:43. | :14:53. | |
I certainly underestimated the extent to which Europeans would | :14:53. | :14:56. | |
throw money at the problem and delayed dealing with the | :14:56. | :15:00. | |
fundamental issue, such as countries like Greece, that they | :15:00. | :15:05. | |
are unable to grow within the eurozone, and that difficult | :15:05. | :15:10. | |
decisions have to be made. Where I still stand, something has to give | :15:10. | :15:17. | |
them. Either the eurozone would transition to a smaller, less in | :15:17. | :15:24. | |
perfect eurozone, or Germany and other strong economies are going to | :15:24. | :15:28. | |
sign up to end this checks to countries like Greece. One of the | :15:28. | :15:36. | |
two decisions will be made. Let's be clear about this, when just the | :15:36. | :15:40. | |
other day, in the HARDtalk student I had the vice-president of the | :15:40. | :15:47. | |
European Commission, he told me quite confidently that the period | :15:47. | :15:51. | |
of existential threat for the euro was categorically over, in your | :15:51. | :15:59. | |
view, was he being premature? question is what the eurozone will | :15:59. | :16:04. | |
look like. Here is a choice that has to be made by European | :16:05. | :16:10. | |
countries. One is to opt for something that works better because | :16:10. | :16:15. | |
there is better political, economic, banking integration. That is one | :16:15. | :16:19. | |
possibility. The other one is to say that we are going to maintain a | :16:19. | :16:24. | |
political project that does not make total economic sense, but that | :16:24. | :16:31. | |
is OK because the credit Dyer's -- the creditors will subsidise the | :16:31. | :16:36. | |
debt to tears indefinitely. And sure that make that decision, | :16:36. | :16:41. | |
growth will not materialise. point to key decisions that I yet | :16:41. | :16:51. | |
:16:51. | :16:52. | ||
to be made. That leads me very easily to a discussion about the | :16:52. | :16:57. | |
historic decision taken by Prime Minister David Cameron to go for | :16:57. | :17:02. | |
the gamble of than in out referendum in the UK. It is about | :17:02. | :17:05. | |
Britain and membership of the European Union. His argument is | :17:06. | :17:10. | |
that he will go to Europe, he would negotiate a new settlement for | :17:10. | :17:14. | |
Britain inside the European Union, a loose a settlement, as far as | :17:14. | :17:19. | |
Britain is concerned, and then he will put it to the people as an in | :17:19. | :17:26. | |
out referendum. As an outside observer of Europe at -- and as an | :17:26. | :17:29. | |
investor, what you think of the strategy that can man has now | :17:29. | :17:36. | |
adopted? -- that Cameron. It does not surprise me that he has gone | :17:36. | :17:42. | |
down the path. I felt how strongly that people felt about the British | :17:42. | :17:46. | |
sausage, I remember the Yes Minister series on that, so it does | :17:46. | :17:51. | |
not surprise me. Pretend use the European Union as a means to an end, | :17:51. | :17:57. | |
it is a common market that allows for more trade and employment. -- | :17:57. | :18:02. | |
Britain views. The Europeans, especially the Germans and the | :18:02. | :18:06. | |
French, see it as an end in itself, it is about political integration, | :18:07. | :18:11. | |
reducing the risk of something terrible. There is a fundamental | :18:11. | :18:15. | |
difference in how people see this. This fundamental different | :18:15. | :18:19. | |
perspective has not been resolved yet. The second thing it tells us | :18:19. | :18:24. | |
is that the more the eurozone, the 17 countries, seat closer and | :18:24. | :18:29. | |
closer integration, the more problematic it is for countries | :18:29. | :18:33. | |
such as Britain that are members of the European Union but not members | :18:33. | :18:39. | |
of the eurozone. You are a hugely influential investor and economist. | :18:39. | :18:47. | |
In your opinion, can the UK afford to leave the eurozone -- the | :18:47. | :18:52. | |
European Union, which is going to be one of the two options in this | :18:52. | :18:59. | |
referendum? It will certainly suffer the consequences of a said, | :18:59. | :19:04. | |
which will probably mean lower growth, lower investment initially, | :19:04. | :19:10. | |
it will be a one of shock, and that is the economic cost of a political | :19:10. | :19:17. | |
decision. Then it will be set, but immediately, it would translate | :19:18. | :19:23. | |
into lower investment and lower growth. You would be aware that a | :19:23. | :19:27. | |
senior figure in the State Department, Philip Gordon, recently | :19:27. | :19:34. | |
came to London and said that the US regarded it as a key national | :19:34. | :19:40. | |
interest for the UK to be inside the European Union. As a private | :19:40. | :19:45. | |
investor in the UK -- the US, will be UK be less attractive to you, | :19:45. | :19:49. | |
will it be the strong economy if it were to be outside the European | :19:49. | :19:57. | |
Union? A lot depends on what conditions prevail on the outside. | :19:57. | :20:01. | |
If he forced me to say in general, I will tell you yes, because it | :20:01. | :20:06. | |
will have less preferential access to a bigger market, and that | :20:06. | :20:11. | |
translates into law where economic potential. So yes, it will be worse | :20:11. | :20:15. | |
off. But the only thing that I would caution is that let's wait | :20:15. | :20:21. | |
and see on what condition this would occur. But on the surface of | :20:21. | :20:26. | |
it, Britain economically will be less well off. And you would be | :20:26. | :20:32. | |
loath to put more money into the UK if that is your analysis. | :20:32. | :20:36. | |
problem that Prime Minister Cameron has to deal with is that when you | :20:36. | :20:40. | |
make a forward announcement, and he has made a forward announcement, | :20:40. | :20:45. | |
this referendum is not any time soon, people like a start putting | :20:45. | :20:49. | |
in an uncertainty premium. If we are going to make investment | :20:49. | :20:54. | |
decisions which will play out over five-ten years, what does the | :20:54. | :21:00. | |
regime look like in the next five- ten years. It will go up when you | :21:00. | :21:04. | |
are not sure what the relationship between Britain and Europe will be. | :21:04. | :21:10. | |
We may face five years of uncertainty. If he were to win the | :21:10. | :21:14. | |
next British election, he will insist on a referendum by the end | :21:14. | :21:18. | |
of 2017. It seems to be suggesting to me that that potential length of | :21:18. | :21:25. | |
time of uncertainty could be very damaging. It could. The one silver | :21:25. | :21:30. | |
lining is that in that period, we will also get information on the | :21:30. | :21:35. | |
eurozone. We have the eurozone, the inner core, and Britain on the | :21:35. | :21:39. | |
outer core of the European Union, and Britain's well-being also | :21:39. | :21:43. | |
depends on what happens in the inner core. We will have a lot to | :21:43. | :21:49. | |
talk about. It is not just about what Britain does, whether it stays | :21:49. | :21:53. | |
in the outer core goes out, it is also about what happens in the | :21:53. | :21:59. | |
inner core. Right now there is speculation because our economic | :21:59. | :22:03. | |
performance is poor, we may be close to losing our AAA credit | :22:04. | :22:07. | |
rating. You follow this very closely because it is very Germaine | :22:07. | :22:12. | |
to your business investing. Do you think that Britain is going to lose | :22:13. | :22:18. | |
its AAA credit rating? It depends who is writing it. If you are | :22:18. | :22:23. | |
talking about the rating agencies, Moody's, SNP, they have Roddis | :22:23. | :22:32. | |
ignored a highlight of wood that Britain may lose its AAA C -- they | :22:32. | :22:39. | |
have already signalled a high likelihood. We do not follow those. | :22:39. | :22:44. | |
We use our own internal ratings. It suggests that British risk right | :22:44. | :22:50. | |
now is less than it was in the past. There is likely to be a downgrade | :22:50. | :22:57. | |
from the rating agencies. In fact, very few countries are likely to | :22:57. | :23:01. | |
return AAA rating right now, given the course that everybody has | :23:01. | :23:09. | |
embarked on, but investors, we make a different assessments. We have | :23:09. | :23:14. | |
talked about Japan, we have talked about the US, the European economy | :23:14. | :23:19. | |
as well. In this terrible phrase, are you more risk on all this off | :23:19. | :23:26. | |
in your mind set at the beginning of 2013? We are taking risk off the | :23:26. | :23:33. | |
table. We were based on, our clients benefited, and now we are | :23:33. | :23:38. | |
taking it off. Let me explain why because this is very important. | :23:38. | :23:44. | |
Economic fundamentals are here, the valuations are much higher, why, | :23:44. | :23:48. | |
because central banks have created a huge liquidity which, if you | :23:48. | :23:54. | |
listen to what Ben Bernanke said in December, he said the objective of | :23:54. | :23:59. | |
monetary policy is to push investors to take more risk. He has | :23:59. | :24:05. | |
pushed investors to take more risk, valuations have gone up, but the | :24:05. | :24:09. | |
fundamentals do not validate these valuations. Valuations will come | :24:09. | :24:15. | |
down. At this point, we are saying what, be careful because asset | :24:15. | :24:19. | |
prices are artificially supported and there is a limit to how long | :24:19. | :24:24. |